A chart of accounts – the list of categories an organisation records its income, costs, assets and liabilities against – can only get you so far when it comes to reporting and analyses.
An accounting dimension is a separate tag attached to a transaction, department, site or project that lets you ask a new reporting question later without redesigning the account structure itself.
By keeping the two separate, you can keep a chart of accounts usable as an organisation grows.
The short version
- A chart of accounts is the list of categories an organisation records its income, costs, assets and liabilities against. It tells you what kind of cost or income something is.
- Some finance systems can only slice reporting by a small, fixed number of categories, so department, site, project and fund end up squeezed into the account code itself or left out of reporting altogether.
- An accounting dimension is a tag attached to a transaction, separate from the account it’s coded to, that shows where in the organisation something happened.
- By keeping the chart of accounts and dimensions separate, you can answer a reporting question without redesigning the account structure.
- A simple test: if answering a new reporting question always means adding new account codes, that’s usually a sign that dimensions, not the chart of accounts, are the right fix.
However comprehensive your chart of accounts was when it was created, there comes a time when it can’t accommodate all your needs. An account code that was created to record office costs might now be required to record which departments, sites, projects and funding sources those costs relate to.
With nowhere else to put that information, it gets folded into the account code itself, as ‘Office costs, London, project A’ instead of ‘Office costs’, adding to the number of codes until nobody can find the right one or reconcile cleanly against last year.
The solution lies in separating the two issues that got conflated by that one accounting code. What kind of cost is this and where in the organisation did it happen? In the latest in our series about reporting, we look at what an accounting dimension is, why it’s important to keep it separate from the chart of accounts and how to tell if an overloaded chart of accounts is already holding you back.
What is a chart of accounts?
A chart of accounts is the list of categories an organisation records its income, costs, assets and liabilities against. Every transaction gets coded to one of these categories, so the organisation can tell, at the simplest level, what kind of income or cost each transaction represents.
A chart of accounts shows what kind of cost or income each transaction is: salaries, rent, professional fees, sales revenue. That’s the foundation every set of accounts is built on. For a small, single-site organisation, it can carry most of the reporting anyone needs without much strain.
What happens when it has to do too much
Some finance systems only let you slice reporting by a small, fixed number of categories, so department, site, project and fund are all squeezed into the account code itself or left out of reporting altogether. Neither option works well as an organisation grows.
If you keep squeezing extra information into the account code, the number of codes will multiply every time a new department, site or project is added.
A cost that used to have one code, such as ‘Marketing’, now needs a separate code for every combination of department and site it might apply to. Leaving the information out of reporting altogether is worse. The transaction still happens, but nobody can report on it the way that matters to them, so they fall back on a spreadsheet or a manual tagging exercise.
What is an accounting dimension?
An accounting dimension is a tag attached to a transaction, separate from the account it’s coded to, that allows you to analyse the data without redesigning the chart of accounts. Department, site, project and fund are dimensions. They tell you where in the organisation something happened, not what kind of cost it is.
A transaction needs two different pieces of information at once: what kind of cost or income it is, and where in the organisation it happened.
The chart of accounts tells you the answer to the first question. Dimensions contain the answer to the second. They are separate, addable tags that sit alongside the account code rather than being built into it. A single transaction can carry several dimensions at once – department, site and project together – without changing the account it’s coded to.
Why separating the two is important
A chart of accounts records what kind of cost or income something is. A dimension records where, in what part of the organisation, it happened. Keeping them separate means a question like ‘Show me this cost by department, then by site’ doesn’t require redesigning the account structure. It just means applying a different combination of dimensions to data that’s already there.
When these two questions are conflated inside the account code, every new reporting requirement requires a structural change.
A finance director who wants to see costs by region for the first time shouldn’t need to add dozens of new account codes to make that possible. If dimensions are already attached to each transaction, that question can be answered by filtering on a dimension that already exists, not by rebuilding the chart of accounts around a question nobody asked when it was first designed.
What this looks like in practice
At Landlink Estates, part of a farming and property group, the previous system had locked reporting into a rigid structure. Senior Finance Manager Tom Marriott describes the codes and dimensions from that system as having been "set in stone", built once and never really flexible again. Moving to a system built around addable dimensions allows the team to build the analysis that’s needed, rather than working around a structure decided years earlier.
The same was true at The Recruitment Group, which grew through nine acquisitions and needed to report by company, division and cost centre. That analysis became straightforward once those factors were added as dimensions attached to every transaction.
Where iplicit fits
iplicit doesn’t put a fixed limit on the number of dimensions available, so department, site, project and fund can all exist as separate tags on every transaction without running out of room or forcing a choice about which ones matter most.
For more on what to look for when assessing how flexible a finance system’s reporting really is, see iplicit’s guide to flexible accounting software.
A simple way to think about it
There’s a straightforward test for whether reporting is being held back by an overloaded chart of accounts. Does answering a new reporting question always mean asking someone to add new account codes? If so, that’s usually a sign the fix is dimensions, not more codes.
A chart of accounts that only grows in one direction, requiring more codes, more combinations, more to reconcile, isn’t a sign of a thorough finance team. It’s a sign the two questions it’s being asked to answer at once were never separated in the first place.
See for yourself
To see iplicit in action, with its unlimited number of accounting dimensions, you can take a free 3-minute tour.
What is a dimension in accounting?
What is a dimension in accounting?
An accounting dimension is a tag attached to a transaction, separate from the account it’s coded to, that records where in the organisation something happened, such as department, site, project or fund. It allows you to answer a new reporting question by filtering on that tag, rather than by changing the chart of accounts itself.
What is the difference between a chart of accounts and a reporting dimension?
What is the difference between a chart of accounts and a reporting dimension?
A chart of accounts shows what kind of cost or income a transaction is. A dimension shows where in the organisation it happened. Keeping the two separate means a new reporting requirement, like breaking a cost down by site, doesn’t require redesigning the account structure.
Why do organisations run out of room in their chart of accounts?
Why do organisations run out of room in their chart of accounts?
Usually because the chart of accounts is being asked to answer two questions at once: what kind of cost something is and where it happened. Without separate dimensions to carry the second question, extra detail gets folded into the account code itself, adding to the number of codes every time a new department, site or project is added.
How do you know if your reporting needs dimensions rather than more account codes?
How do you know if your reporting needs dimensions rather than more account codes?
If answering a new reporting question, like showing a cost by department and then by site, always means adding new account codes, that’s a sign the chart of accounts is being overloaded. Dimensions solve this by attaching that information to transactions directly, without changing the account structure each time.
